The Eurozone debt crisis and the huge fall in the domestic equity markets triggered a fall in the rupee to levels last seen 14 months ago.
Though nothing has changed inherently either in favour or against the rupee, other denominators like the dollar are looking comparatively stronger.
The global financial markets were gripped by fears of a Greek sovereign debt default. This saw flight of investors to the dollar, which is considered a safe haven, said dealers.
“Due to the eurozone problem, the dollar index is going up. This is putting pressure on all other currencies,” said Mr Pawan Bajaj, General Manager, Treasury, Bank of India.
Investors also fear build-up of a bubble-like situation in gold, which is another reason for the huge dollar demand.
On Monday, the rupee opened at 46.93 and closed at 47.22, a level last seen in July 2010. On Friday, the rupee had closed at 46.56.
The low industrial output at 3.3 per cent for July, against 9.9 per cent a year ago, added to the negative sentiments against the rupee.
Most dealers are of the opinion that the next resistance level for the rupee could be at 47.30-47.50. If it breaches that level, it could decline to 48. “We were expecting that 47 might hold. But since that did not happen, the rupee may touch 48 anytime. If that happens, we may even see the central bank intervening,” said the chief forex dealer with a private sector bank.
According to Mr Moses Harding-Head Global Markets Group, IndusInd Bank, it is important that the RBI ensures that the rupee stays within the medium- to long-term range of 44-47 to avoid explosive price volatility.
On Monday, exporters were seen selling dollars to cash in on the strong dollar. But as imports are higher, it may not have much impact, said Mr Bajaj.
The 12-month premium closed at 2.4 per cent, against the previous close of 2.97 per cent.